How to ride

Marty is an old retired wrinklie with a new knee. “I get the next one done in a month,” he told me. “But I also need new wheels.” So, he bought a Kia. I tried to restrain myself. So, how are you gonna pay for it, I asked? “Cash,” Marty said, “because I get a $1,200 discount.”

He plans on taking that money out of his newly-funded TFSA. Bad idea, I said.

Normally I don’t get too excited about people chucking away money on vehicles, but shortly after talking to Marty I took a call from a guy I deal with in Calgary. “I’m buying a new truck,” he said. Turns out the young stud’s ready to drop $48,000 on a bitchin’ big EcoDiesel pick-up. Sounds reasonable, I said, but how are you going to finance it?

“From my RRSP,” he said. I lost it.

As well as being rutting season for the house-horny, Spring is all that time of year when people do stupid things with vehicles. Like buying them. In doing so they pretty much decide to sacrifice a part of their financial well-being to acquire a machine destined to depreciate to zero. The same machine they could rent for a fraction of the cost, of course, while keeping their investments (especially tax-free ones) multiplying and increasing their net worth.

So remember this simple rule: buy what appreciates and lease what depreciates. With cars and trucks and most other wheeled things (classic motorcycles excepted, of course), depreciation is certain. Kias and Chevs turn to dust. You sure don’t need to buy one to have one.

Here’ why buying a new vehicle sucks.

First, (as stated above, but bears repeating) a car is not an asset. It does not rise in value with time. It loses up to a third of its value worth you’re using the dealership washroom before driving it home for the first time. It’s a horrible place to put large amounts of your own precious, after-tax dollars.

Second, unless you’re a pimp or a rock star realtor needing to make a statement, this is all about cash flow, not status. Buying a car and financing it through the dealer will cost you more than leasing it. Why? Simple. When you buy it, you’re borrowing the full value of the car or truck, right down to zero. But when you lease, you’re skimming off the good, maintenance-free years and financing only that amount. The car still has a residual value when you drop it off – that you were not required to buy.

Third, raiding a TFSA, or an RRSP or any kind of investment account to get a vehicle is insane. Especially now. Even a (shudder) new Kia can be leased at a rate of 1.9% with a $750 credit. Other dealers will go lower on the rate. So why would you suck money out of an account earning 7% or 8% (especially tax-free) to buy a depreciating hunk of metal when the dealer is mental enough to give you the money for 1.9%?

Fourth, cars break, wear out, get recalled and do what all machines do in the end. When you buy you feel a psychological obligation to keep the sucker going until it’s better suited being a planter. Why keep pumping money into something with no worth? By leasing you can be safe, warrantied and upgrade every two or three years. Today with 72- and 96-month dealer financing common, many fools will still have a few monthly payments left on a ride that died.

Fifth, that means most new car buyers today, acquiring cheap vehicles on extended financing plans, will never have any equity in them. If that’s you, take lots of anger management pills before you go to trade it in.

Finally, what’s your time worth? Leasing vehicles may cost you more dollars than dealer financing over the course of many years (and many cars), but you never have to spend time and money hauling it to the shop – since your wheels are always almost-new. As for paying cash, this is like giving your money to an investment dude who promises to lose 18% a year, guaranteed. Guess what you’d do to him?

Invest your money. Lease your car.

Even better, be like the Alberta guy after I straightened him out. “You’re right. I’m not buying. Actually I’m just going to rent this truck on the weekends, when the girls are out.”

haha only in Calgary.
good one today; I still have to justify having leased my car to everyone (handy 2014 replacement after a no-fault total-loss). People feel like I’m throwing money away. Just like renting in Vancouver. Yawn.

Or, you could do as I did, buy a 1961 TR3 for $3,000, maintain it well and then sell it 30 years later for $14,000. Of course, I could have done far better with Apple stock but I sure had lots of fun driving the TR3! :)

I would never lease a car. To me, it feels like ‘throwing your money away on rent’. Instead, I have always bought a good used car and paid cash (Well, except for my very first car where I got a small bank loan as I was newly graduated and had little money saved yet).

If you are not in a hurry and have the time to look, you can find an excellent car with low mileage that will last a long time if you take care of it. I currently drive a used Honda Accord that I bought when it was just under 3 years old. Driven by an elderly couple and had very little mileage, in almost perfect condition and still had some warranty left on it. I live in Toronto and we looked from London to Kingston, finally buying it in Brockville. It’s much cheaper to buy outside of a major city if you don’t mind the drive. I’ll keep it for a good ten years and ultimately it’s much cheaper than leasing. My last car I kept for 13 years and it was still in good shape when I sold it. If you take care of it and get the oil changed regularly, they last for a very long time. I’d rather have my money in the bank than have the latest status symbol on the road.

In fairness, there is no such thing as 1.9% financing. One is always forgoing a larger possible cash discount when accepting such subsidized financing offers. Ideally one would buy vehicles with the proceeds of taxable accounts, and if leverage is desired, replace the investments with low-cost borrowing on a margin account or HELOC. Voila, tax deductible financing (which sure beats the 5-8% that most dealers will charge to finance cars once everything is said and done!)

Inside a TFSA, using deep-in-the-money call options to replace notional exposure to a position is an option (no pun intended) to raise funds for a consumer purchase. Haven’t done the math, but its probably not all that disfavourable.

Bought a 2000 Honda Accord in 2008. Paid cash just under 9k. Pay only liability insurance on it.
If I leased, in 6 years this April I would have paid much more in lease payments and additional insurance, because I would have had to buy full coverage.
Lease for a new Accord: $340 a month, plus insurance would have been an additional $100 at least.
6 yrs * 12 mths * $440 = $31,680
Even with all small fixes and maintenance, what I spent on it is less than a third of this amount.
I gave up the luxury of driving a new car, but saved over 210% of my purchase price in these 6 years.
Still driving and maintaining it in good condition.

Reminds me of that classic letter pair from the NY gold-digger looking for a $1m/yr earning husband and her intended prey (not Jamie Dimon, this joke’s been around longer than that.) At one point she wonders how “such plain women” end up married to rich men like what she’s after. Well, unless those dudes are dumb, the plain-looking wives have something to offer that doesn’t depreciate.

Kept my Toyota pickup for 27 years. Paid cash for it. Didn’t figure it owed me anything. Motor was still good. Body was rust. Lease doesn’t work for some of us. Trips across a good part of the continent. Hauling lots of stuff. Of course, a Toyota pickup wasn’t a babe magnet. It ran cheap, it ran well. I wish I’d bought two and stored one.

Do you need the $400USD for groceries/rent? If not, hang onto it for the next time you travel (assuming you do, but if moving to the U.S. is a possibility I assume you’ll go there to check it out). For such a small sum you’ll get bent over on the exchange rate spread.

If you think you’ll have tens of thousands of USD in the future, open up a USD bank account. If you must exchange it back to CAD, exchange large sums at the same time so you can haggle with the bank over rate (the regular banks have preferred rates for big customers or large sums.)

Not only Calgary….um I live in rural Ontario. The guys with the big black dualies, a tool belt and can fell a tree in one motion ARE chick magnets! The gals sorta like guys that can “do stuff”. A useless man is VERY annoying.

It’s pretty easy to get both the cash discount and financing as low as 0% (Ford) on the purchase of a new vehicle….If you’re good they will also give you 10K cashback to “pay off your credit cards.” All at a below market interest rate. Easy bi-weekly payments (whatever happened to monthly?) This must be utterly destroying the market for an off lease vehicle when it’s so cheap to buy new.

Apparently anyone one can get approved (sub prime) regardless of credit history!

We like to buy our new car for cash and then depreciate through the business over 3 years, may not be as good as leasing but our accountants seem to think it works. Other vehicles like motorcycles and my old collector BMW are “emotional” purchases and do depreciate in value as time goes on but you have to have a little fun and you don’t live forever.

Leasing may make sense in Southern Ontario where commutes are long and cars start rusting out after 5 years, but in most cases the depreciation if you buy will be significantly less than lease payments.

This is especially true if you drive a lot less than 20,000km per year and know how to keep a vehicle in good shape.

Agree with many posts above, and disagree with Garth on this one.
Better to buy a good quality low-mileage used car that has lots of legs. My colleagues all drive new, mostly rented, luxury cars, and keep making monthly payments. My car is now 10 years old, rides like a charm with basic maintenance, mostly limited to oil changes. I expect it could last at least another 5 years, and probably closet to 10 years. After that, I will again look for a used low-mileage good quality car. No end of choices with all those rental returns. :)
Just need to find a good broker.

There’s a few moving parts. As Mark points out, they’re not financing the lease at 1.9%, they’re “financing it at 1.9%!” Obviously there’s an actual cost of money being used for their calculations.

Further, you aren’t paying for the depreciation from the start to the end of the lease, you’re paying for the ESTIMATED depreciation, plus a risk premium to the party taking the risk of that estimate being wrong. Like all cyclical lending, they estimate optimistically and with a low risk premium at the top of the cycle (e.g. the Detroit gang getting totally burned on SUV residuals when gas prices rose a lot and they couldn’t give them away), then they get conservative for a few years and lessors pay more.

And finally, there’s the gamut you have to run at or near end-of-lease, as the guy at the dealership says it needs new tires and brakes, and has more than normal wear and tear, but he’ll overlook all if you sign on the line for another lease.

But probably a good deal for some. I’ve stopped criticizing those who buy vehicles differently than I do, because we’re all in the same market, it’s a bit of a zero sum game, and I think I’m winning. Now if only that guy who showed interest in the car I keep out west for when I visit comes back and takes it off my hands for 3x what I paid, I can start shopping again…

I want to throw it in my open investment account and buy some ZDV the next time I have a few grand ready. I probably will be in the US at some point on business travel though. If I take the cheque to [email protected], do they charge anything for cashing it and giving me ‘murican bills?

The big sum later is an interesting tax headache. I have stock options in the US. If I was only Canadian, I would exercise, CRA would take ~47% off the top, and that’s that. Since I’m dual, IRS will take ~30%, CRA will take ~17%, and next year I’ll need to give 30% to the CRA, and get back the 30% from the IRS…

On the topic of cars, I wanted to buy a Honda Fit last year. I looked around but I couldn’t find a deal on a used one. If the car had 80% of its life left, it was 80% the cost of a new one. So I just bought a new one cash.

I definitely see the advantage to buying a few years old on more expensive cars, but I’ll personally never want to buy anything other than econoboxes.

You obviously haven’t had to sort out an estate where an old guy has a newly leased car and lives in another city to boot. You can’t even break a lease if you die. My friend just had the worst nightmare sorting out his old man’s estate as the executor and dumping the lease was the hardest part.

In response to #6, you really don’t seem to understand several concepts.

yes, even if you have the money, there are cases where it’s cheaper to rent or lease a hot water tank, particularly if its electric, and particularly if its fed with well water.

Like cars, hot water tanks have a short, limited lifespan, and wear out within several years.

Buying a new car from a ‘stealership’ is a great way to burn your money. The depreciation is so high after purchase. Even more so with luxury brands.

If you require a showy new car, lease. When its no longer new, its returned.

if you’re less fussy, and better with your skills and money, a lightly used newer vehicle is available. I just visited an auction on the weekend with many newer reposessed vehicles, torn from their ‘owners’ hands as they couldn’t make the payments. An excellent buy if careful.

if, like me, you’ve decided you’re man enough to develop some mechanical skill, you can do really well with an older vehicle. Simpler, easier to maintain, with an ample supply of cheap used parts, I have plenty of fun with older vehicles. Already depreciated, many become disposable after a few years, with total cost of ownership being very low.

Thanks for this Garth. I always figured that but good to hear you confirm it. As it is I use public transportation. Once a year (or less) I rent a car and go on a road trip. If I ever buy a vehicle it would probably be a Toyota. Many people agree that you can always sell a Toyota. They have some value even at the end of their lifespan whereas an American vehicle really is worthless at the end.

That last part is the best — especially if you live in a major city or already have a car.

Between insurance (in Ontario, at least, because wow, how ridiculous it is), loan payment/lease payment, maintenance, etc., I worked out that I could rent a car -every weekend- and still come out ahead. Take transit/carpool on the weekdays, get a new fun car every weekend.

If it’s for investing, I’d use it to buy securities priced in USD on an American exchange. I’m only a Canadian citizen, so in RRSP or non-reg I wouldn’t lose the withholding tax or have the complicated CRA/IRS shenanigans. Though you’re dual, I’d think there’s still benefit to holding the USD as USD for investments. They’re such a bigger market, there must be worthwhile stuff to buy that’s only available on a U.S. exchange. I’ve ended up buying basic U.S. ETFs in the Canadian wrapper, forfeiting the withholding tax but not having to pay through the nose to exchange currencies, either.

Disagree GT. Leasing has huge margin built into it as well. Big margin means you lose every time. Extra mileage charges at lease end and residual kill you. You may think you’re at zero % interest, but add in charges etc and you’ll easily be ay 10% plus.

Best bet? 1-2 year old used with very low mileage. And pay cash. And stay in budget. Remember, more millionaires drive Fords than any other brand.

Harley’s? I met a guy a couple of years ago who couldn’t afford to buy a used bike for cash, but Harley financed him on a $45K Road Glide… for 7 years… at $900 month. Do the math. Something is messed up in this world.

Bought mine for 5k used, 15 years back, it was probably 10 years old then. Still driving it. A Toyota that old doesn’t give up easy.

I guess the difference is, it also doesn’t need to be hooked up to a computer to tell you what’s wrong with it. So the maintenance has never been costly. Nor do you need proprietary tools that get changed with every year model to work on it. The most I’ve spent on it in any year would have been $550.

I actually don’t agree with you on this one Garth, at least not if you need a car for the long term. After you drop that leased sucker off at the dealers, you’ve still got to lease another one, and so on. Twenty years of that could get expensive.

I bought my Honda for $17,000 all-inclusive (taxes, financing costs, etc.) with a five-year term. It will be paid off in a year, after which I should be able to enjoy at least another 5 years or so of relatively hassle-free driving.

I’m into driving cars as little as necessary, and for as long as possible…i.e., into the ground. I don’t care if rust isn’t pretty.

My current ride was purchased used more than 5 years ago… it was 4 years old at the time. Cost me almost a me well below 1/2 of the original purchase price (including all those silly new-car fees). Runs like a champ.. my friends drive newer, fancier cars… Don’t car for bourgeois German cars…

It’s a car… as long as I can get to work and back comfortably, I’m content..

Garth, a diesel truck is an asset. A guy can throw a ladder in the back and start a roofing business.

Whats not an asset are beemers and benzes who retail $20k more than exactly the same domestic vehicle but they have done a mad men marketing job convincing people they need a luxury car to get groceries in.

48,000 for a bitchin’ EcoDiesel pickup? Oh dear.
Garth, you have to live out west to really get an idea of how big and costly these rigs are.
Your average big ass crewcab all loaded up is closer to 80,000. Sometimes more. And usually the owner hasn’t paid off the one he presently owns when he waltzes through the showroom door.
Never mind excessive mortgage debt, there is plenty of excessive auto debt to go around. As an example: I have a family member who owns two big ass trucks. One for work in the oil fields. One for personal use. His wife has one as well. All 65,000+ rigs. They also have a little ‘city’ car for quick runs in their hood.
Trucks out number cars in many of the hoods in western Canada, Garth. Many work in city jobs with no real reason to own one. Driving those big rigs is some kind of an extension of their……………(?) Ego. Ego is what I meant to say….
Imagine all that capital tied up in depreciating assets.
Mercy.

Interesting post Garth. Some good comments on the subject too. Best 2 suggestions I can add for Joe average about saving money when it comes to driving a vehicle: 1) don’t drive more vehicle than you NEED. 2) keep driving time to work under 30 minutes.

I don’t totally agree with Garth’s assessment here. I bought a Mazda 3 in 2008 for about $24k at 0% financing. The thing has been paid off for about a year now, it’s in good condition, and I plan on driving it for at least 5 more years. After adding in leasing costs I’m pretty sure I still come out ahead, as the monthly lease was definitely more than half the financing cost. But as with everything, whether it works depends on the specific numbers of the situation.

Funny enough I initially set out to buy one that was a year or two old and hence had already experienced a large depreciation, but after paying off a normal car loan the 0% financing was only slightly more for a completely new vehicle with full warranty.

I think that, like buying a house or renting, just do your own math. I’m 10 years into a Toyota Corolla with maybe 1 or 2 very minor repairs so far – they just don’t die. Last one went to 250K until the rust started and electrical went weird. My trick is to get the most reliable car, buy it 1 year old off a rental company (preferably one that’s been doing long-term rentals – you can usually tell by the mileage not being too high). Saving is about 25% when you factor in taxes. You can also consider your tax situation and whether you write it off for business – leases can make a lot of sense if you’re doing that. So it will depend, just don’t try to play games about how much it’s worth to someone else. Focus on how it will make itself worth to you.

I think that perhaps you overlook the fact that people who lease their vehicles tend to give into temptation and lease another shiny brand-new one at the end of a lease period (typically every 3 years), therefore locking themselves into always having a vehicle in their driveway that is going through it’s steepest depreciation period. People who “buy” their cars are far more likely to keep them well beyond what a typical lease period lasts, therefore spreading the inevitable depreciation over a much longer period of time. Just sayin’.

Just do what the Italians do in the GTA when it comes to cars. They keep driving their 1980’s monte carlo’s , usually burgundy in colour but sometimes a poopoo brown, whilst driving around collecting some 7 rent cheques a month on their rental properties ( fully paid of course)

‘How can you be cowboy without a horse” I always said.Bought my first Harley in 79’ for 6 g’s,sold in 2001 for 8 g’s,bought another 02 HD RG for 11 g and its still worth north of that.Not really much in the way as a financial plan persay but those bikes do appreciate if well maintained.Cant really say the same about their 4 legged cousins!
My winter vehicle is an 05 diesel that ive had one small repair on in 8 yrs,less than 100k{due to bike for summer}so vehicles have been good to me.
Best of all both are bought and payed for,Im just at the mercy of the oil cartel.

Or, and even better option would be to NOT own a car, if you live in a place with public transit. I’ve never owned a car, having lived in Toronto all my life, where transit is ok and cars are just a PITA. I’m happy to pay for a metropass and taxis and save the thousands a year I’d be spending on a car / parking / insurance!

Hi Garth, I was just told I have ALS ( Lou Gehrig’s ) and will be in need for a wheelchair van. I heard there is small tax benefits. Do you have any advice on saving money, because it’s a need not want. Thank you

Wondering if someone could give some advice. I had some money in a TFSA at Bank of Nova Scotia in a GIC. It was in a 5 year term paying 1.75%. The amount was $16000 (3 years of contributions + the interest it gained).

I was anxiously waiting for it to come to term and then move it to TD and invest it better.

I went to BNS today to check on it and they told me that it came up six months ago and they automatically rolled it into the same thing – ANOTHER 5 YEARS @ 1.75%!!!!!!!!!!!!! and that I can’t do anything with it until 2019. I am so mad. They said they mailed things to me but I didn’t receive anything and they had a wrong address for me too. They said that they mailed statements and there’s nothing that I can do now but complain and handed me a “how to complain” brochure.

The brouchure says to call the president’s office or then write a letter some ombudsmen.

Can they really just hold my money hostage like this for 10 years!! The original 5 year term and now the one they did on their own.

I know I should have checked on it more but I thought I would have received a statement reminding me about it.

We just bought a brand new 2013 van. Got it with full warranty for 23K. Original sticker was 35K. Amazing what cash and buying old stock can save you.

Last van we got was same kind of deal, 24k. Got over 328,000 km and 9 years out of it. Might still get more.

If you do oil changes, vehicles last. I don’t want even one year old. The oil shop I go to has told me horror stories of idiots who come in after 50,000km for their first oil change. Engine is already toast. Why would I want to buy that suckers after the first two years?

If I lease it for $500 a month, that’s $54k at the end. Not worth it IMHO.

I used to have some VXUS in USD, but currency conversion is such a headache, especially if one wants to rebalance yearly with ETFs in different currencies. I get 50% international exposure in non-hedged, CAD denominated funds (VUN, XEF, XEC). IE the US funds in Canadian wrappers that you also prefer.

“But when you lease, you’re skimming off the good, maintenance-free years and financing only that amount. ”

Really? I thought you pay interest on the full amount, not just the cost less the residual. In other words the interest portion is the same as financing but the total amount is cheaper because the repayment portion is for a lower amount (cost less residual vs. total cost of car)

The lender is paying for the full amount of the car while you’re leasing it, not just a portion of it. So the lender expects to be paid interest on the full amount.

I could very well be wrong – this is more of a question than an assertion. Thanks for a great blog. !

In my experience “buy and hold” works best with cars. Buy a well-maintained used car (three or four years old, when the bulk of the depreciation is paid for) and run it into the ground while taking proper care of it to maximize its useful life.

Yes, at some point the repair costs will become prohibitive, but if you take good care of it, the thing can last you a very long time. After a few years you are basically paying only operating costs.

When you lease new cars, you are always paying the maximum amount of depreciation. Yes, the car is always under warranty and you will have fewer problems, but that convenience comes at a very high price given that cars are not assets, as Garth says—they are money pits.

Take advantage of low interest rates and special deals to finance the car and free up your money for investment. My last vehicle was financed at zero percent. The one before that at 1.9%. They are 10 and 15 years old respectively. They look great and drive just fine. I did purchase both of them new, but my next car will likely be used. People who ask are always amazed when I tell them how old the cars are.

Also before you buy, negotiate mercilessly until you reach a rock bottom price. It helps to know that price going in. Figure it out, stick to it and hammer away. Buy only what you need, not what you want, so that you maximize its value by minimizing costs. Don’t forget, you always have to factor in insurance. Buy cars with low risk of theft to save on insurance costs.

Where you live matters too. If your house is in a high-crime area, sell, monetize the mania, and rent in a nice safe, low insurance cost area. Take the money you would have spent on a cash purchase and the proceeds from the house sale and put it all in one stock you are sure will double in six months. Uh… maybe scratch that last thing.

“I probably will be in the US at some point on business travel though. If I take the cheque to [email protected], do they charge anything for cashing it and giving me ‘murican bills?”

Yes, and a lot. We have lived down here for many years and whenever someone sends us a Canadian bank check we found that the banks down here do not have the ability to instantly convert. They have to send it back to the Canadian bank that the check was written for collection. Usually two to three weeks or longer. In the meanwhile you fall prey to handling fees and exchange rates.

For example, my mother use to send me a Canadian check for a hundred dollars for my birthday. By the time I saw the cash, and assuming the Canadian dollar was at par, I got $6o dollars USD.

Larger amounts the banks charge a fee plus 2 – 3%. It is much cheaper to send the Canadian check back to the person that issued it and ask them to convert it into US funds at their bank in the form of a bank draft or whatever.

Yes, they can do that. Remember, it’s not legally your money. You lent it to the bank and you agreed to the terms of the ‘loan.’

I’m sure the banks hope for exactly the situation that happened to you. They feed off of ignorance and negligence. If I were you I would try to fight it, but only if it’s worth it the hassle and cost to you.

Hey Garth, you should stick to what you know. The classic car market has been showing returns similar to the financial market in the last 3 years. If your raiding your RRSP or TFSA to buy a new or near new generic car than yes its a bad investment. But anything with some soul and character has been taking off. This is my business and I know it well, trade classic car investment tips for financial market tips?

“In fairness, there is no such thing as 1.9% financing. One is always forgoing a larger possible cash discount when accepting such subsidized financing offers.”

Technically your right, but if you know the rock-bottom price (e.g. dealer invoice) and you stick to your guns when you negotiate, you CAN get the benefit of the lower financing rate without foregoing the cash discount. If the manager won’t deal, move on to the next one. I’ve done it several times.

“[…] if you have the money, there are cases where it’s cheaper to rent or lease a hot water tank, particularly if its electric, and particularly if its fed with well water.”

My water heater is power vented. Very expensive to rent as the blower costs about as much as the water heater itself. Bought my last water heater. Seven year pay back. My previous heater lasted 15 years.

I do it pretty much the same way in my Scotia iTrade account except I prefer using an inter-listed stock. You need one that trades heavily on both the US and Canadian exchanges so that the difference in price between Canada and US will be almost exactly the true exchange rate (due to arbitrage).

Usually I do it with Potash (POT). Keep in mind that you should only do the trade on an ‘up’ market day to minimize any risk. There have been times I’ve actually even made a small capital gain on the trade.

At Scotia, I can now, for example, buy 500 shares of Potash on the TSX through my online brokerage account and turn around and sell them immediately on the US side, also online. Voila! US dollars for the price of two $9.99 trade commissions. You just have to be sure to call your broker afterwards to ask them to ‘journal over’ your shares to the US side so your account is reconciled.

I have a property in Florida so this is something I do regularly. Why pay the bank huge fees to switch your own money? There’s almost always a cheaper way to do things and this works like a charm.

One of the factors that sucks car shoppers into new leases or purchases is the loan interest.

Banks and finance companies typically charge a steep premium on used tin. People with no money run the numbers and figure they can buy new with the same payments stretched over 84 months at 0% or close to it.

RE: #51 Diane S in BC on 05.07.14 at 8:52 pm
I went to BNS today to check on it and they told me that it came up six months ago and they automatically rolled it into the same thing – ANOTHER 5 YEARS @ 1.75%!!!!!!!!!!!!! and that I can’t do anything with it until 2019.

If you haven’t already, talk to the branch manager. Usually you can get your principle back from your GIC early if you are willing to forfeit any interest accrued.

This is all starting to get VERY ugly, very quickly and global. It is becoming economic warfare. I think the US is in such a desperate financial situation they are starting to shoot from the hip and not thinking straight. The unintended consequences have not been thought out and no one is putting on the brakes. This will affect everyone if they crash and burn. All of this is the result of FATCA and the illegal IGAs they have been concocting. (They call them agreements so they do not require congressional approval. They are actually treaties and do need to be vetted by congress. The IRS is now creating international laws. NOW THAT IS TERRIFYING.)

Andrew, you wrote: “America’s strength has always been not its mighty fists, but the respect it rightfully earned. Now what?” I agree, they are better than this. I am so hoping they find their way, we all might just go down with them. What does the world look like if China is the holder of the reserve currency? I sure in Hell don’t know but an alternative banking system is already in its formative stages. The respect it rightfully could have earned is circling the drain. Even their own people living abroad hate them.

Could someone here make me feel better? I think, though this is NOT my field of expertise, we are all in trouble. What does Canada do to protect itself from all of this nonsense? What do we mere mortals do? I’m putting my new car fund under my vicious shepherds bed!

#51 Diane S in BC — “I went to BNS today to check on it and they told me that it came up six months ago and they automatically rolled it into the same thing – ANOTHER 5 YEARS @ 1.75%!”

I’ve had three annoying experiences with BNS in the last five years or so. In the first, I had a GIC with instructions to reinvest. When I finally decided to redeploy, branch staff told me they’d “reinvested into cash” as per instructions. I told them in no uncertain terms that there’s no such think as reinvesting into cash. I was loud (but not loud enough that they could call the police), persistent, and visibly angry. I didn’t leave until they fixed it; I got my cash with the interest I would have been entitled to.

The second time was a few months ago cashing out an RRSP. It had originally been created with Montreal Trust, which they’d bought. Lately they’d been sending me paper saying they were instituting a new fee of $50 per withdrawal. Nothing of the sort was contemplated in the Montreal Trust contract, which I took with me. Buddy wanted to charge the fee. Wasn’t going to happen. Wanted to issue me a credit or something instead of giving me all my money. Wasn’t going to happen. I told him it was getting late and if he had to phone legal downtown before it closed, he’d better get on the blower instead of trying to stonewall me.

The third was a credit card advance at a great interest rate. They had trouble processing it. Said they could do the advance that day but “it might not be at that rate.” I laughed out loud before starting in.

Don’t leave. Don’t be abusive. Don’t be quiet, accommodating or understanding. Don’t agree to a later meeting or one with someone else. Do it during daylight business hours so they can’t say there’s nobody here with authorization until closing. Make them believe that you will be annoying and irate, tying up senior staff and disturbing other customers for as long as it takes. If you don’t have paperwork, ask for a copy of what you signed (but expect a song and dance about how that’ll take days, and brush it aside).

Alternatively, if you have business that you could pull without huge penalties, there’s always that threat.

But if you leave, or shut up and take it, or get sad instead of angry, or get abusive toward staff, or get profane, you lose. The managers have discretion. It’s usually better to be a shareholder than a customer, because then you can think happy thoughts about all their customers who allowed themselves to be screwed.

These are the reasons why the feds WILL double the TFSA contributions prior to the next election. There is zero risk to government revenues with these because very very few know how to use them and all they do is let the money sit and capitalize the banks.

Doubling allowable contributions will make people feel good about fairies and rainbows and people will think PCs are looking out for regular folk.
PCs look like heroes, govt revenues are not affected and its a win win for everyone.

thank you for helping us with our money decisions.i think that you are worth more to the canadian population than all the insincere and incompetent politicians in parliment.i decided to lease my 2012 prius so that i delayed paying the taxes on the full amount until end of 48 mth lease.also put 5000$ cash to lower lease rate from 1.9 % down to .04%.at lease end i will buy car for 13500$ plus 15% tax..total 15500$..minus the 5000$ cash…balance 10500$

I’ve had my toyota carolla for 10 yrs, had only to replace rear brakes so far. I fully expect it to go another 5 years.
Best advice about buying cars is don’t buy too much car – why bother with SUV or luxury vehicle when you can get a brand new midsize japanese car for half the price and after 4 years have no payments to make on it.

With vehicles there is much more leeway in the buy new/used/rent/lease decision due to personal circumstances. Aside from real estate, cars (and most other things) cost more to rent than to own, because the owner expects to make a profit on the lease, which means it is NECESSARILY more expensive to rent. Only landlords are happy to lose money on their purchase. A lease will have you pay for the depreciation, which is significant in the early years. You will save on maintenance, but there is still maintenance, and new cars are very expensive to keep.

If you don’t need to drive latest and greatest all the time, buying a 2-3 year old in good condition (might take a while to find!) is the way to go. Most of depreciation is paid for, mechanicals are still good, and it likely still has (some) warranty. Otherwise, leasing is a no brainer, particularly if you are self employed or can otherwise find a way to write off some of the expense. Still plenty of demand on both sides of the trade to keep everyone happy.

“The oil shop I go to has told me horror stories of idiots who come in after 50,000km for their first oil change.”

Plenty of modern cars go just fine 50-100k km’s between oil changes. The key is to ensure the oil quantity is adequate (and it won’t be if the oil isn’t checked and topped off at least more than once during such interval).

It depends on which type of car you buy. If you use RRSP/TFSA to buy a luxury car, it is insane.

However, if you keep leasing a family sedan and have to renew he lease every 4-5 years, it is also insane. Because the leasing cost is always there.

For example, I bought a CIVIC in 2002. I paid off in 2006. I am still driving it. So from 2006 to 2014, I haven’t paid any money for a car other than gas and insurance. How much money I have a saved? If you keep leasing, then how much money you have paid for a car since 2006?

In the end, I agree that using money from RRSP/TFSA is always a bad idea.

Garth you forgot to mention insurance on a new vehicle is less than an older one. You’ll actually pay less insurance on a leased car because it won’t be more than 3 years old. If you buy your premiums will increase with the age of the vehicle.

I know it doesn’t sound right but the risk is justified. Newer vehicles don’t have control arms snapping and causing accidents or other problems. They are also safer because the newest safety and theft features are installed.

I used to train dealership business manglers in a former life. Payment buyers always get hooped. I agree with many of the blog dogs: buy 1- 2 years old, clean with low kms and then keep that car. I just bought a loaded 2012 Chrysler 300S last fall after my last car got tattooed by a buck with a death wish. MSRP was $42,900, but I picked up a super-clean copy with only 15k for just $24,500. Look on the little weasel’s face when I told him I wanted the 100 per cent down, zero interest deal: priceless. Soon we’ll be financing our bloody groceries…

“Harley’s? I met a guy a couple of years ago who couldn’t afford to buy a used bike for cash, but Harley financed him on a $45K Road Glide… for 7 years… at $900 month. Do the math. Something is messed up in this world.”

Did that include the pickup too though? You know the old joke. What do dogs and Harleys have in common? They both like to ride around in the back of pickup trucks.

Leasing is basically a scheme by which people can “afford” a more expensive car than they would buy if they were just buying the thing. The key is really to first have discipline to not buy the most expensive thing they can find, and secondly resist the urge to flip to a newer car every 2-3 years.

My approach is to start by buying used (2-3 years old), and then drive it until it dies. My current car is 12 years old, and still going strong. Had I been leasing, I would have had to turn in the old one and lease another (several times over).

We buy cars to run them forever. And we buy strategically. We purchased our test drive model crossover SUV at the end of the month at the end of the quarter — and were they willing to deal? You betcha. 0% financing. Paying off straightaway without taking $ out of our savings, nor lessening our monthly transfers. plus plus plus.

Traded in our 2001 Caravan with 184k on it, which we bought used in 2002 and ran her across the country and back.

It makes no economic sense for me to invest in a depreciating future ex-wife, when I can enjoy the benefits of casually dating mature, well maintained executive driven (more like executive neglected) convertibles.

Leasing the Nissan Leaf electric car makes sense if you have a short commute and access to free plug in at work.

These cars were on a deal in April where the effective obligation was $16,000 over 4 years once you took into account the $8500 Ont. grant. It worked out to just over $300/month. Even if you had to own or rent a second car for intercity travel it seemed to make sense.

Like this blog states about cars & real estate , no magic tricks, they’re much the same and requires insight , a plan & balance.

With all the crap coming down with the criminal UN Agenda-21 , well all be lucky to even be driving down the street, growing our own vegetables ( or flowers ) , owning real estate larger than 200 square feet.

Do your research, it’s the biggest , most destructive scam in human history!

NextUp: Something for GreyBeardHyperSport enthusiasts… ProductionNotes: SaltyDogz, in this context the lyric works much better if you substitute, “SuperBikeRiders” for “SuperStarDJ’s”… I can reliably confirm that the BeatsPerMinute – as ‘ridden’, will well&truly exceed WhiteLineFever on even the BestEuroMotorWays. BonusZen, Nemesis does appear – briefly – at the very end of that clip… a legacy of driving for Bonny’sBurnaby, if you will…

Just bought 2 new toyotas over the last 2 years cash from the same dealer. They always have huge cash incentives. Check out the dealer costs first @ unhaggle.com. But I will be driving both for at least the next 10 years.

I’m not one to like lots of debt even with low rates. I’d buy my house cash if I could have. Unfortunately can only do that with a US property.

“If you drive a real beater, then the weekly oil top ups are essentially oil changes on time…..”

Nah, burning oil will destroy oxygen sensors fairly quickly. I’m referring to normal cars, not beaters. Of course, it varies by engine to engine, but a good chunk of the fleet on the road would work wonderfully on extended drains if people could be trusted to otherwise take the vehicles in for normal non-oil maintenance.

Being quite the dork, I did read the terms and conditions when signing up with Questrade, and I seem to recall they prohibit Norbert’s Gambit. (Of course, you don’t call up and broadcast your intentions, but it gets pretty obvious what’s going on.) Am I remembering it wrong, anyone else hear of a brokerage officially prohibiting you dodging their currency exchange profits?

If okay to do, I’d be willing to give it a go when I’m a wealthier and more experienced investor.

Cramdown, two solid posts tonight. Thank you for sharing interesting and clear thinking on a lot of these issues.

As far as lease vs. buy, I’ve wrestled a couple times.

If you’ve nailed it down to a certain car, and are just trying to decide purchase finance, pay with cash or lease, the analysis is most sensitive to two factors – interest rate differential, and how far you drive in a given year.

You also need to run the scenarios over different periods.

Let’s throw out the option of cash. Garth is right, this is simply stupid – Financing for all options is available at less than a good portfolio returns. Even if you knock 10% or so further off the best possible finance deal you could make (and this is usually unlikely), you still lose big time by forfeiting 5/7/9% compounding returns.

I’m also throwing out used cars from my consideration. With well-made cars, I find that the “sticker price” on 3 year old lease returns is a damned sight higher than I am willing to pay. Half of the useful life has been chewed up, and the previous owner got the maintenance-free years. Yet, for some reason, I cannot find a deal with 50% reduction unless it’s mass-consumer grade big 3 trash……and brother, I don’t use that for anything but short period fleet lease!

So, I’m looking at purchase-finance or lease of brand new.

In my experience, there is always a spread, and it always seems to be at least a couple percentage points, and sometimes a lot more.

At low-ish rates, small spread, and a short study period (say 3 year lease versus 3, 4, 5 year purchase), this may not be a big deal.

Now, big spreads kill the lease – I can remember many years ago however looking at a spread of only $30 per month between the 5 year buy payment and the 4 year lease payment (lease would have left about 55% at the end). The reason was a purchase rate of 4% or so versus a lease rate almost double that…… Lessers lose in that deal.

Re: Mileage – If you’re over the standard 20,000 or 24,000 km lease, you either get hooped on per km charges, or, you have to negotiate a less standard “high-miles” lease and pay for a greater percentage of the car value over the 2/3/4 whatever years. If you have a relatively modest driving habit of 32K km per year, leasing will rarely win.

I generally keep a car until my annual maintenance projection exceeds half of the car’s value (I wrecked my last one for a few hundred once the brakes started creaking……so, occasionally, I get ’em right to the ground). With this, taking the 0% purchase-financing incentive for a quality import over a sane period of 4 years or so has always been the best alternative.

My current ride was purchased used more than 5 years ago… it was 4 years old at the time. Cost me almost a me well below 1/2 of the original purchase price (including all those silly new-car fees). Runs like a champ.. my friends drive newer, fancier cars… Don’t car for bourgeois German cars…

It’s a car… as long as I can get to work and back comfortably, I’m content..

——————————————————————
Obviously haven’t spent any time driving a German car, the difference between being “content” and having a little fun while getting good fuel economy. And try comparing repair bills….front brakes for our BMW 3 series…$325, for our Nissan…$650, I can’t believe there are so many people stuck in boring cars that don’t know any different.

I bought my Honda Civic hatchback new in cash in 1998. I still drive it. Runs well; the biggest repair was to replace the distributor last year. I use the auto as a way to get from A to B, no need for a flashy car. Next time I will buy used. Honda or Toyota.

I own a Toyota Corolla, 7 years old with 173k on it, and two accidents (hit from behind twice). If all folks are going to do is fling themselves at my back bumper I am never buying or leasing a new car.

All GICs including non-redeemable GICs should be cashable before maturity. Chances are that you will have to forfeit any interest earned from the renewal 6 months ago. Another option is to keep your money with BNS and ask them to change the term to what you want. Most branch managers are willing to do this for you and you will not lose the interest earned (yes they can even do this 6 months after a renewal).

Another tip to remember is that GIC rates are negotiable just like mortgage rates. If you must buy a GIC don’t take the posted rate. If the personal banker you’re dealing with is not willing to offer you something better then take it to the branch manager. They all have the ability to give discretionary pricing. You might need to fight for it but remember to be nice. You want them to think that you’re doing them a favor by keeping your money with their institution.

Just thought I would make it clearer incase there’s an outside chance you don’t know this. Typically, Redeemable GICs are cashable before maturity with an interest penalty. This means that you won’t get the full interest rate if you redeem early but you will get some interest. Non-redeemable GICs are cashable with no interest. You can redeem early but you won’t get any interest. Don’t let these people bully you into believing that you can’t take your money out. You definitely shouldn’t need to go to the financial ombudsmans office for this.

I think the point Garth makes is more akin to NEW cars. If you are a person who feels that you must have a new car every 2-3 years then leasing is the only way to go, financially. If you are one who can buy a vehicle and enjoy using it for say 5-7-10+ years then a good used vehicle works best. Make sure it’s at least 3 years old as it’s reached the bottom of its quick depreciation curve. Most new vehicles will depreciate by about 50% by 3 years. After that they lose about 5-10% per year.

So again if you like a NEW RIDE every 2-3 years, leasing works best. If you can appreciate a vehicle for a longer period of time, a good use car will always cost you less even if it needs service/repairs.

I’ve recently been moving my life from one bank to another, and I may have some good news for you about switching banks, and recovering your money from that GIC. (This is assuming that you’re moving your entire TFSA to TD Bank.)

I’ve been pulling money, RRSP, and TFSA out of my old bank (I won’t say their name, but their initials are RBC), and moving it to Canadian Western Bank. When I asked CWB about having them transfer my TFSA, they told me that the lone GIC that I still had in my TFSA would not be a GIC once it arrived at CWB; it would be cash, and I would forfeit any interest that it had accrued. In your case, that would be good thing.

The first step for you is to go to TD and tell them your plan, and tell them that you want this GIC in cash when it reaches their bank. That’s probably what they would do anyway, and since there is only six months worth of interest at 1.75 percent since its rollover, you would be losing about $140. Sucks, but you’ll make it back quickly when your $16K is better-invested.

The second step is to ask if they will cover any costs that Bank of Nova Scotia may charge for transferring your TFSA to your new bank (I know that RBC charges $50). Almost any bank will cover this fee once, just to get your business; if TD says no, say thank you, gather up your things, and leave.

When you’re ready to arrange the transfer, be sure to bring your Bank of Nova Scotia paperwork regarding your TFSA to your new bank; they’ll need all the account numbers from it. One thing to note is that the entire transfer process can take from three to five weeks, despite all the talk of “all they have to do is push a button”.

One last thing, and Mr. Turner can delete this paragraph if it’s too close to advertising: If you don’t get everything that you want from TD, check out other banks, big and, well, medium, until you find one that makes you happy. After years of feeling like I’d just been molested whenever I walked out of the bank, my new one is like a breath of fresh air. I’ve been well-treated whenever I’ve dealt with them, even after they got my business and my money. (No, I don’t work for the bank; no, I don’t own shares. I’m just very impressed, and glad that I took the time to find the best fit for me.)

P.S. To anyone still reading this, if your bank even mentions a five year GIC earning only 1.75 percent, wave your rude bits at them.

really, spending anything more than $10 0r $12K is too much if you’re middle class… A 4 year old, $12,000 Civic with 60 to 80 Km (assuming it’s in decent shape) will last you more than a decade.. probably 12 or 13 years easily. You can accommodate a family in a Civic without a doubt. If you need to drive to Cape Breton for the family vacation, rent a van.

North Americans are running themselves into the ground accumulating more and more debt by the second.

Whether it’s housing, 70″ TVs or cars, we will surely expire as a global power at this rate…

So much misinformation in this article. The interest rate is basically irrelevant with leases. Low interest rates are marketing gimmicks because it usually means the residual is low, too. Any time you see a 0.9 or 1.9% lease offer, it’s usually because it’s the end of the model year and the residual is 10% lower than the new model where the interest rate might be 2.9%. The nonsense about “other dealers may go lower” on the interest rate is exactly that. Almost all leasing is through the manufacturer’s finance company, and the dealer has no ability to change the rate. However, sometimes the silly ultra-low advertised interest rates do have to be subsidized by the dealer, out of his margin on the car, so all it means is less discount available on the car to the consumer.

Also, leasing sucks on most domestic and high volume brands precisely because they don’t retain their value. Far better to buy a two-year old model, which will still likely be very reliable for years since there really aren’t any terrible cars any more.

I initially set out to buy one that was a year or two old and hence had already experienced a large depreciation, but after paying off a normal car loan the 0% financing was only slightly more for a completely new vehicle with full warranty.

Garth, I think you need to do another big picture post on.. life! The meaning of life…

Reading the posts here, sometimes, is a sad glimpse into narrow, confined little lives and mindsets. People making huge lifestyle choices.. living in basements, taking only public transit, etc.. all to save a few bucks.

I don’t judge the choices, per se. If that’s really what a person wants, or if that is just their economic reality, then fine. But the comments belie otherwise. People seem to be making huge compromises to save a few piddly dollars.. it’s sad.

And then there are the endless hours debating and discussing how to exchange a few hundred bucks in forex.. or elaborate tax maneuvers to save another few dollars.

Jesus people, life is short! Don’t be a financial imbecile, but beyond that, live a little!

Buy a car of a make that is usually rated high for reliability. Buy it with cash (which you’ve been saving because every 8-10 years you’ll be repeating this). Keep it until it dies.
Leasing is for people who like to change cars frequently, and you do pay for that option.

I am with Scotia iTrade and I do it regularly there and have never once had a problem. You buy on the Canadian side and immediately sell on the US side, no need to wait for the first trade to settle. You just have to call them and ask them to journal your shares over. There is no extra charge for this. Don’t know what Questrade is all about but all of the bank brokerages allow you to do this.

There are people who actually make a living at it, taking advantage of arbitrage opportunities when there is a price discrepancy between the Canadian price and US price of an inter-listed stock which can happen if it is thinly traded.

Haven’t owned a car for over 10 years. Zipcars below my rental kando building or with some fancy online footwork and discount codes can get a full size (Passat) for around $50-60 all in.

Toronto is nightmareish for diving on weekends. Weekend traffic standstills on the Don Valley Parking Lot, Gardiner Distressway and Lakesnore Blvd. Closed for marathons all summer.
Cops everywhere on weekend quota duty. And unlike 2nd world countries they are not even bribable! Seriously, they collect $250 and all they get is a pat on the head from their boss? Makes little sense. I’d rather peel off a 50 or two. Cost of doing business. Pay-per-use.

Most popular licence place in Calgary? ‘Git er done’.
An ephemeral pledge to do what for how long and when? Cowboy time.

@104 Son of Ponzi:
That’s on of the biggest educational mistakes that parents can do.
Somewhere in the depths of the Internet, I found a quote that best describes the way inter-generational relationships should be:
“Always spoil your parents, but never – your kids”.
This is what I do.

___________________________________________
This is a Smoking Man idea! He needs to chirp in here and claim his rightful place as an Alpha Male Wolfe.
By the way are the Wynn dolls anatomically correct?

Garth I think your generalization that leasing a vehicle is better than buying one is a dis-service to your readers.
There are many instances when buying a vehicle is a smarter choice. For example
-someone who drives very many km per year
-someone who barely drives at all
-someone who intends to keep a car for an extended period of time
-someone who doesn’t need new

I will agree that leasing is ideal for those who would prefer to drive newer vehicles and change them regularly. But you still have to follow the deal as not all leases are created equal. And a very important reminder that most people should stay away from “open ended leases”.

Absolutely true wheels are the worst investment with the caveat of Classic Muscle and Classic Imports. They do appreciate however can be a bitch to unload at the time you want to get rid of them. My day driver is a Ford Edge, my fun vehicle 1967 corvette Stingray 427 convertible. Paid $18,000 in 1998, worth $110,000 today. Now not an investment per-say and even with the return on its original investment it sucks but these are the only wheels that will give a ROI.

Dundee REIT (TSX: D.UN) gives you all the perks of being a landlord but without the hassles of chasing down tenants or fixing toilets. This company owns the property, but you’re the one who collects the cheques.

More importantly, Dundee doesn’t rent out its properties on Craigslist. This landlord specializes in commercial properties with a number of office properties across Canada. The company’s tenants include the government of Canada, Telus, Bank of Nova Scotia, and Bell. Needless to say, these types of customers always pay their bills on time.

Today, the trust yields 7.7%. Given that many of its leases are likely to be renewed at higher rents in the next three to five fives, you can expect Dundee to increase that distribution in the future.

=============

I own dundee and H&R individually and XRE on top of that. In my case, much preferred to sit back and collect my distributions and capital gains vs owning, managing and renting property on my own.

Better advice is to find a good used car, pay for it outright if possible, or finance it for whatever low rate you can get.

I will explain why…lets say you “lease” that $48,000 super duty F250 that you have been drooling about. Everything is great…then your company gets bought out by some foreign entity, that deems you are too expensive to hire, and either imports its “own” people over or contracts out your position or moves the entire company to a 3rd world nation. Bam, you and all your buddies are outa work…and if you are in a one horse town, finding similar work, just don’t exist.

Now you have to sell your ride or return it or get lease busters to help you out…or it gets repo’d by the finance company, cause you can’t pay….you loose your credit rating, you loose your ride…and now you have no vehicle to get you to your new job stocking shelves on night shift at the local big box store.

If you have a used vehicle, you can always find “Joe” or “Bob” and pay them to fix your used car in your driveway…or fix it yourself. You can go to the wrecker and get parts… If it is paid for, it is yours, and gets you from “A” to “B”…period…it don’t have to be fancy and new.

Your “get a lease deal”, only works with people with “cash flow” that is stable….if you are not in this position…I don’t recommend Garth’s recommendation. So if you are in government, education, hospitals, etc..that haven’t been affected by piss poor economy…then go and jump into a lease…it will work for you.

If I had “financed” “2” new vehicles back in 2009, I would have “lost” everything when the auto industry went into melt down mode. And I mean “everything.

Your advice only works for people “with” money and stable cash flow, and not for everybody else.

I bought a new 4runner in 2010 with cash for about 45k and just sold it for 32k; works out to about 270/month to own, not too bad, but doesn’t account for the lost opportunity cost of the initial 45k not being invested. Just bought a new 4runner and will probably roll that over in 4-5 years while I can still get ~30k for it…Worry free driving is nice, as it is next to impossible to work on new vehicles these days. I lease my audi as I can claim the mileage through my corp so it only costs me about 200/month, I might by it out at the end of the lease and sell it myself, should be able to make any 5-7grand.

Life is too short to constantly drive a beater, my first car(parents bought it for me as a university grad present) for $100 and I think they got ripped off, ’79 bel air…the key had snapped off in the ignition which was cool because I could just jump in and go, never had to worry about losing my keys!!

It cruised down the highway nice until one my idiot friends hit something with it and messed up the alignment without telling me, I lost the steering doing 110 down the road, not fun, should have killed him for that.

Had a neighbour with 3 ferrari’s including an Enzo, pretty sweet, but I also saw the paramedics haul him out of his house, dead as a doornail, a little too much leverage apparently….It’s all just ‘stuff’ but if you can afford it, it is nice stuff!!!

Raiding your savings or rrps’s to buy, just plain stupid, and you can’t fix stupid.

We bought our old car for $23K and drove it for 14 years. Even if you factor in maintenance and repairs, another 7K (that is being very generous) you still have a car that cost us about $2100 a year to operate and run. When it sold privately, I received exactly 12% of the original purchase price. I’d say I did okay buying a new car. I just bought another one in fact, and plan to drive it into the ground like the last one. Let the posers lease their vehicles. I will pay cash and be further ahead taking care of an asset I know I own and am proud to know I have worked for.

Check out what billionaire Jim Pattison rides. My first and last new car was in 1963. After that, 3 to 4 year old vehicles with few miles and held for 7 yrs or longer. Never bought warranties or ever had anything occur that would warrant them. Did most of my repairs and maintenance. Nowadays cars last much longer than they did when I was much younger. Have owned 3 Chevy S10’s and put over 300,000 on each with very few problems. Most vehicles had less than 40K kms. Half were private purchases and paid in cash and half or less the cost of a similar vehicle. My latest purchase bought privately is a 2006 Silverado special edition 4 x 4 with 41000 km for 18 grand. Many upgrades by the original owner and complete towing package. One owner who treated it like a baby. Prior to this one the most I had paid for any vehicle was $9200 and I drove it for 12 years. This current one cost the previous owner around $48000 new with all the add ons. I suspect it will last me until they take my license away. There are far better places to put your money than in vehicles unless you have so much money that it doesn’t matter. Even Jimmy drives used cars. Why not, he started out as a used car salesman.

I don’t think you can look at everything in your life as an investment. A car is a depreciating asset, however you use it to make money, save time, enjoy life, transport food and other goods to your house etc. If you like perpetual car payments and don’t put more than 20,000K per year then its probably a good choice for you.

A house is the same, if you look at it strictly from an investment perspective, you would never buy because its almost impossible to come out on top.

Garth, as advice goes today’s post sucks. Leasing makes great sense if you can write off the payments, no sense if you own the new car for many (7+) years and it has some sort of residual value because you maintained it properly. I could show you the math, but you can find it on the Intertubes. If you go 10+ years, you a ignore residual values. I got 13 years out of my old Cavalier – you have to keep your ego in check though.

If a person chooses to put the same time into studying businesses as most apparently do into studying Linsey Lohan and into studying sports statistics, that person would likely become rich over time. If nothing else their storehouse of information would be a more valuable asset.

Leasing is like buying a condo. You don’t have control over the car/condo. Condo has special assessments, leased car has mileage limits, go over and you pay more. The premium you pay of the monthly lease price, is like the condo fees, paying over and above the Principle + Interest.

It may work out mathematically for some people, but I can’t live with those restrictions. It’s either mine or it isn’t.

Best car I ever had was a branded 2000 Z24. Reliable engine, only expected repairs over time. Most comfortable ride too. I still miss that car. Sold it to my father when second child was on the way, one car seat in the 2-door was do-able, two would have required acrobatics.

My father, over the 45+ years he’s been driving, also says it’s one of the most reliable cars he’s driven. Keeps it parked on an unpaved driveway year-round, it starts in the worst of winter weather, no problem. Man, I miss that car.

This may have been posted already, but in case it hasn’t, here is a blog entry from a U.S. real estate consultant that mirrors much of what Garth says, namely that increasing prices on falling sales is not a good sign. It even quotes his Greater Fool Theory. hahaha!!

gm v6 vortec has got to be the best engine ever made – 20yrs and 200k and exactly zero repair work other than a 18$ set of new plugs over a decade ago (the old ones were fine)
and it still starts/runs like the day it drove off the lot.
the rest of the vehicle (suv), not so much. i had the wonderful good fortune to have the tires/batt/egr/pwr window/2x oil line leak/+ all die out at about the same time , a perfect ending! i will still shed a tear later this morn when my baby gets towed away, but the engine will live on in another truck.

just replaced the truck with the same year/model (ie i just bought another 20yr old one!) in mint condition, at 10k km/yr it will last me 10-15 yrs and it cost me 2.5k. I got 500 for the old one.

of course it has leather and is loaded.

the only time the original one was in the shop overnight it was just a few days old (dealer left out the diff oil plug)

Three comments: 1) cash is king in the private sale; 2) exploit market inefficiencies; 3) do your homework.
I picked up a 40k+tax volvo turbo wagon, 5 years old, fully-loaded sport package, audio, full leather for 11k. Fully 75% off the new price.

Let the other guy pay the depreciation, taxes, freight, PDI, and exploit the inefficiency of a private sale by haggling. you’ll also do much better than in a dealership. Just make sure your purchase is conditional on an inspection (just like with a house!) and that the car has current emissions cert and safety certification. (If not drop your price further.) Still got a fun/nimble car to drive, and all the luxury without the price tag.

People fear the stigma of a ‘used’ car and repair horror stories. Inform yourself a little and you can do very well going this route. There is a fascination with ‘new’ in our culture, and the new car smell quickly fades anyway.

My father may have bought only one new car in his lifetime and never did it again.

Best part? I bought the car from a gearhead that kept the car tip-top and who had too many cars and too few parking spots — the mechanic told me it’s been serviced more than regularly and should ride smoothly for years to come.

Hi Garth, I was just told I have ALS ( Lou Gehrig’s ) and will be in need for a wheelchair van. I heard there is small tax benefits. Do you have any advice on saving money, because it’s a need not want. Thank you

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Sorry to hear that, Frustrated. I wish you well, and hope for medical advances to ease your suffering, even better, for a cure.

“Hey Garth, you should stick to what you know. The classic car market has been showing returns similar to the financial market in the last 3 years. If your raiding your RRSP or TFSA to buy a new or near new generic car than yes its a bad investment. But anything with some soul and character has been taking off. This is my business and I know it well, trade classic car investment tips for financial market tips?”

I have been watching the ‘classic car’ phenom with some bemusement. It occurs to me that it’s like baseball cards and those beanie baby fuzzy toys……a generational fad.

Suddenly. every boomer who moves up in life due to an inheritance from grannie wants to relive the youthful fantasies they may have once had but always too afraid to work for. These grey haired losers have pushed up the price of cars that cost $150 ten years ago to tens of thousands today. Question is…if it is as it seems a demographic phenom…then what will the value be when there are no buyers for ‘muscle cars….as the generations of the future have no interest in such things and the current owners are steps away from the graveyard?

If you were a loser in high school…you’re probably still a loser today….a ’70’s Camaro will not help. And btw…I live in the US where these cars at auction sell for half what they do in Canada….why are Cdns such suckers for these things?

Which leads me to mention a story I read not too long ago(sorry I don’t have a link at this moment) where a study showed that the ‘average’ person’s IQ was actually lower than a human being from 10,000 years ago. Basically, our society has evolved in such a way, that the vast majority could not, for their lives, survive on their own if they had to solely rely on themselves for basic needs.

That’s why the Lindsey Lohans of the world seek our constant attention!

But Shawn, you’re obviously above average IQ and therefore understand the issue. ;-)

BTW…if meat prices are too high…..another factor is the BOC’s Prozac Poloz and the insane low dollar policy that has driven food prices up 15% since they started bashing the dollar to the amazement of all economists.

You said “… we’re emotional about our cars. It won’t kill anyone to mix it up in the comments a bit. I like reading the other commentor’s car stories.”

I still miss all the cars I have ever owned. I’ve never leased, always bought new or newer, and drove them till they were almost on their last legs. Giving them up felt like putting down an old cat or dog.

I still miss my 96 steely blue Honda civic with sexy bra and spoiler – almost cried when I traded it in for the Dodge Caravan ‘mom’ van I’m driving now.

#137 Ayn Rand Army on 05.08.14 at 10:11 am
Why is this blog descending into car blog, i had to skip almost every post! This is supposed to be real estate and related finances.
I don’t know why Garth lets you asshats get away with this. I miss Smoking Man. And I hate cars!
I’m so FATCA’d!
(ps. i drive a ford and expect to be rich one day)

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Lesson here is………..save cash on cars, drive cheap and invest where it counts. Most people require a form of transportation via an auto so they have to spend money on some form of transportation, unless you are one of those whom live downtown and ride the subterranean sewer tube that they call a subway. But god bless them when they want to go up north, to Niagara Falls, or say to London, that’s when they have to source one of those little ZIP cars. That’s it plain and simple lesson done.

#165 goof ball gus – I have the eye of a foodie hawk and all import prices are rising slowly as am being nickel and dimed to death on products coming from Poland. Even domestic prices on kiebaska, as requested yesterday a full loop and fell over when it weighed in at $18.00.

#167 WhiteKat on 05.08.14 at 1:36 pm
@ Mixed Bag re: #154
You said “… we’re emotional about our cars. It won’t kill anyone to mix it up in the comments a bit. I like reading the other commentor’s car stories.”
I still miss all the cars I have ever owned. I’ve never leased, always bought new or newer, and drove them till they were almost on their last legs. Giving them up felt like putting down an old cat or dog.
I still miss my 96 steely blue Honda civic with sexy bra and spoiler – almost cried when I traded it in for the Dodge Caravan ‘mom’ van I’m driving now.
Sniff.
____________________________________________

When I was 17 my family moved to the States and I had to give up the one vehicle I paid for working after school. It killed me as there were some very strick inport laws back in the day. My father said we have room for one car in the driveway only! Still think about it all the time. My 1957 Bel Air was even Red. Miss you baby……………..Now I’m going out to the garage to look at baby number two…………

Always bought used, hate the dealership experience, find buying RE less stressful, the Auto dealership experience turns me into a right prick. I either get the overly aggressive sales rep or the nervous Gil from the Simpsons (“You need rust proofing, those things will rust up on you, shut up Gil just get the sale!”). All my cars have lasted well beyond the time that I wanted to keep them, kept the Cost of ownership very low.

Hi Garth, I was just told I have ALS ( Lou Gehrig’s ) and will be in need for a wheelchair van. I heard there is small tax benefits. Do you have any advice on saving money, because it’s a need not want. Thank you

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Speak to a automobile dealer who specializes in disability vehicles and they will have all the necessary info and forms to apply for any credits.

Yeah people like to talk about cars and their cars, but really enjoying the blog posts today even if the focus (ha!) is off. And SM posts are down to a dull roar, maybe SM thinks cars are way to control the “herd” or are some kind of alien invasion.

I have a diesel in Europe but with fuel prices it makes sense, as expensive as gas is in Ontario it pales in comparison to Europe, it would be nice to have more options from the big 3 and Japanese, but they are coming.

#119 Bob Rice touched on this, but most people seem to overlook how much of their income should really be going towards a car purchase.

Before buying my current ride I took a look at what advice was out there for how much ought to be spent on a car. There seemed to be a consensus on financial advice sites (not 98′ corolla forums) that anything with a price tag over 20% of your income is too much. If saving a chunk of your money while still having a life is your goal, this is probably a good amount.

Really when you look at it, how many weeks of the year do you want to be spending at work to get shiny new wheels. Obviously most people don’t go by this percent, otherwise the average person shouldn’t be buying the average new car.

The math will show you what most posters already know, don’t buy or lease a new car. The best financial choice is a reliable used car with low mileage and maintenance records.

As for hot water tanks, they cost $900 installed and last for ten to twelve years on average. Why in the world would you lease them for $20/month unless you are planning on selling the home before you can recoup the cost?

No-one that I know of in BC leases their hot water tank. I think it is a scam builders in Ontario use to reduce their costs. Homeowners don’t want the hassle or one-time expense of replacing them so the cycle continues.

“How safe are the biggest U.S. banks? It’s OK to feel confused. Two of the banking industry’s most prominent overseers, Janet Yellen and Thomas Hoenig, delivered starkly contrasting messages yesterday. Their statements aren’t necessarily irreconcilable. But they do help show the extent to which the debate is still raging.”

Have to agree with most people on this blog; buy a used vehicle instead of leasing. A lease is putting your money in one place like #89 Eric pointed out “Leasing is basically a shceme…” and I agree. Buying an used vehicle you are supporting the small businessess that go along with maintaining it.

Interest can be written off with a lease but so can other expenses with a used vehicle. Keep your receipts for income taxes (keep them for years for audits).

The money that goes to the leasing can be used to to fix a used vehicle. The money is spread around. Mortgage with housing are in the same trap, one avenue money pit.

#157 Vince on 05.08.14 at 12:53 pm
Three comments: 1) cash is king in the private sale; 2) exploit market inefficiencies; 3) do your homework.
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Do the above apply to house buying?
Is there any advantage in having a big amount of cash that you can give it to the seller ?
How can a buyer sitting on a pile of cash take advantage of this. Assume that the buyer still needs a mortgage but for let’s say 50% of the value of the house ?

“Interest can be written off with a lease but so can other expenses with a used vehicle. Keep your receipts for income taxes (keep them for years for audits).”

Its quite the coup of marketing that people have actually been convinced that there’s a sort of ‘tax advantage’ associated with leasing versus owning for a business. When one does the math properly, there’s not. Yes, leasing can be an inexpensive form of off-balance-sheet financing for a leveraged business, but its not a way to save money on or to create a sort of ‘advantage’ through taxes.

Let’s all be practical about this, beaters are for the winter. I drove one for 3 years in the harshest of winter, no rear brakes, had to put the car in neutral to stop fish tailing at red lights. Cost me $900. While I saw people with AWDs and 4WDs in the ditch, I was plowing along in my 2000 Neon, baby! Drive your status symbol in the spring, summer and fall. Both get you from point A to B but the former allows you to live a little and have some fun in the snow. No Garth, I am not propagating this, “beater”, thread.

Best car my parents ever owned was an old, dented, beat up Ford F150 truck. The automatic windows didn’t work and the gears were sticky, but this was more than made up for every time my grey haired mother took it for a spin.

All anyone could see was this little old lady head of hair through the steering wheel of a truck that looked like she wrapped the vehicle around lamp posts on a weekly basis. The terrified faces of the gentlemen driving sports cars was particularly amusing. No one messed with momma when she drove that truck.

Leasing only works out better if you buy the vehicle back. The buy-back is almost always significantly less than the market value of the same model car with similar kilometers driven, especially if you have low kilometers on the vehicle. If you continuously lease, you are always paying for the highest depreciating period of the vehicle. Leasing works when you buy back because you finance a greater portion of the vehicle at low rates, assuming you would otherwise be earning 7-8% on the money not being paid. As an example, my father had a truck with a $9,000 buy-back, but similar vehicles with MORE kilometers were selling for $15,000.

Once more, Garth demonstrates that he is the head master of the Continuing Adult Education Classes for Canadians. His post this evening or in the days to come should be very interesting.

Is there a correlation between buying or renting a house vs. buying or leasing a car? You bet there is!

If you sign a lease agreement for a car today and/or a rental agreement for a house today and at the end of say three years you already know today where you will be financially. If you buy a car or a house today the financial outcome three years from today is unpredictable.

#172 Old Man on 05.08.14 at 2:08 pm
#165 goof ball gus … nickel and dimed to death on products coming from Poland. Even domestic prices on kiebaska, as requested yesterday a full loop and fell over when it weighed in at $18.00.
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how about products coming from a few dozen miles away … prices skyrocketing on local dungeness crab because… you gessed it, HAM is soaking up the market

at 50+ bucks a crab , sure glad i know where to get ’em for free, less 10bux in boat gas and a fishing lic.

This article seems to be making very broad assumptions. Four I noticed are: assuming high depreciation (some vehicles like a Tacoma or STi hold their value very well); assuming you are strictly looking for a means of transportation (leasing can limit what kind of modifications you can perform and what service is required); assuming you won’t exceed the km limits on the lease agreement; assuming you want a new car every few years. Leasing makes sense for many, but to just outright say it’s the better choice and people are stupid for financing is a pretty big stretch.

“Investors like Leffel helped spur all-cash home purchases to a record 43 percent of U.S. deals in the first quarter, more than double the share a year ago, according to data firm RealtyTrac Inc. Cash is keeping residential sales trudging along while mortgage lending plummets, hurt by rising interest rates and stiff credit requirements. Americans seeking a loan to purchase their first dwelling are increasingly shut out.

“The cash buyers today mean that all is not well in the housing market,” said Clifford Rossi, finance professor at the University of Maryland’s Robert H. Smith School of Business. “First-time home buyers should make up 40 percent and we’re not seeing it because of mortgage rules.””

#205 Old Man — “The best winter car was made by Henry Ford in 1929 called the Fordson Snowmobile. It would drive over three feet of snow like there was nothing there, and you could wave to those less fortunate.”

It was a decent ride, but the René Lévesquemobile was a big improvement — you didn’t need to wave to those less fortunate.

I have to disagree on this too Garth. I bought a 2006 Honda CRV brand new and 3 years after having paid it off, it still runs great (170k Km) Since that time, I may have had $3k in general maintenance/repairs, but taking into account the fact that this equated to 4 months of payments, I think that I’m still farther ahead. That being said, my new Chev Cavalier that I bought in university was a money pit and a hunk of junk. So if you plan to buy and hold, like any product, make sure it’s a good one.

Here in Toronto, rent a condo close to work. Buy a folding cycle and ride to work in the warmer weather. In the winter walk. Invest in some good clothing, rainsuit for the bike, parka & boots for the winter walk. Get an auto share membership for the occasional jaunt to big box at the weekend. Traffic is insane in Toronto and it isn’t gonna get better. There’s little sense in vehicle ownership or commuting here. Take the monthly savings from no car payments, insurance etc and stuff them in a TFSA/RRSP.

Car buyn tips， buy from dealership the 2nd 3rd or sometimes even the last day of month, if possible the last couple months of the year, sweet deals in order to make yoy or mom increase, subprime autoloans is rampant in Canada, rumor has ist Mercedes Benz is forecasting a ridiculous amount of leases maturing in 2015-2016, ie there will be killer deals on 3 yr old Mercs

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The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.